Racing through uncertainty: lessons from Formula One

27 March 2017

Kevin Lamb, Restructuring Advisory Director at RSM

A lot has happen in the last 12 months on a macro-economic level with the Brexit decision and a new US president. This sense of change has also hit the Formula 1 industry; Bernie Ecclestone is no longer chief executive of Formula One following its acquisition by Liberty Media Group and after seven seasons Manor Racing left F1 after a buyer could not be found by the administrators. In a time of uncertainty, what could we learn from these changes?

Firstly, never underestimate the power of the people in a democratic process. A vote to leave the EU was considered very unlikely and when Donald Trump stood for nomination few predicted the final outcome.

Business is equally susceptible to unexpected changes. Whether it is the power of the customer moving business away to a competitor, a major customer or supplier failure, or changes to the political and economic landscape affecting business plans, a business needs to plan for resilience.

Secondly, the line between success and failure can be very thin. Manor Racing points to Sauber’s Felipe Nasr clinching ninth place in Brazil as the cause of its failure to maintain 10th place, losing £12m in prize money and being forced into insolvency.

In reality, a failure by Manor to score more than one point over the entire 21 races in 2016 was perhaps more relevant. Looking back, did Manor take enough risks to survive? Perhaps it gambled on technical improvements that didn’t pay off. Or was Manor Racing a victim of underfunding?

The insolvency of Manor Racing is disappointing and highlights the fragility of motor racing businesses if you are not performing at the top end, but is that any different for any business, in any sector?
Business investment is fraught with risk, but as the old quote goes, ‘Fortune favours the bold’. Balancing risk with reward is key and requires very careful planning and research to assess what could go wrong and how to address it if it does. As we have seen in the last 12 months, nothing is certain, so anticipating change should be the new norm.

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